TaxTMI 
TaxTMI 
2015 (4) TMI 1189
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....ies are hitherto described as they were arrayed as per their rank in Company Petition. 4. The brief facts of the case are as follows:- a. The 1st Respondent Company was incorporated on 30.10.2007, under the provisions of the Indian Companies Act, 1956. The main object of the Company is to develop properties. The Petitioners, being six in number, together hold 18.98% of the shares in the 1st Respondent Company. The first five Petitioners are Private Limited Companies, the shares of which are completely owned by the 7th Respondent and his family members. The 6th Petitioner is the wife of the 7th Respondent. The 7th Respondent, who is a Chartered Accountant, by virtue of his services to the Udayar Group, comprising of the 2nd Respondent and his brother, became their close and confidential associate. In the year 1987, the 7th Respondent obtained an opportunity to acquire controlling interest in M/s.Binny Limited. The 7th Respondent along with late N.P.V.Ramasamy Udayar, M.Nandagopal and M.Ethiraj, decided to have equal share in M/s.Binny Limited and acquired the shares of the Company. The shares of the Company were allotted to the Petitioners, at the behest of the 7th Respo....
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....there is no provision for paper ballot; that the principles of quasi-partnership was defeated by the 2nd Respondent; that the Respondents 2 and 3 have acted against the Board Resolution to remove the 7th Respondent to take control of the 1st Respondent Company and to divert funds to their associate Companies and to misuse the funds and property of the Company for personal use, the Petitioners have filed the above Company Petition, by invoking the provisions of the Companies Act, 1956, for oppression and mismanagement in the affairs of the Company, seeking various main reliefs and interim reliefs as stated under:- Final Reliefs:- 1. To declare that the 7th Respondent is not liable to retire by rotation as a Director at the Annual General Body Meeting of the Company held on 26.09.2014. 2. To declare that the 7th Respondent continuing as a Director of the 1st Respondent Company as the resolution not reappointing the 7th Respondent in the Annual General Meeting held on 26.09.2014 is an act of oppression. 3. To declare the votes cast by paper ballot by the Respondents 2 and 3 in the Annual General Meeting held on 26.09.2014 as null, void and invalid. ....
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.... of the land at Bangalore only in an interest bearing term deposit, free of any lien or charge, with a Nationalized Bank in the name of the 1st Respondent Company. 5. To appoint a Management Committee consisting of Independent Chairman and members representing SN Group and ME Group, equally, to manage the affairs of the 1st Respondent Company. 6. To direct the 1st Respondent Company to convene Board Meetings or General Meeting only after obtaining the approval of the Honourable Bench. 7. To restrain the 3rd Respondent from occupying or making use of any of the property of the 1st Respondent Company as his residence forthwith. 8. Not to enter into or carry out any transaction with any of the related party pursuant to the resolution carried out by postal ballot vide notice dated 28.3.2014. 9. To appoint a Commissioner to authenticate all statutory documents required to be maintained and being maintained by the 1st Respondent Company under the provisions of the Companies Act, 1956/2013 and the Rules made thereunder and the SEBI Act and Rules and Regulations made thereunder. 5. After hearing the parties, the Company Law Board refused to g....
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.... considered only as a representative of his group in all the Annual General Meetings and not as an independent Director, which is evident from the letter dated 01/10/2014. Only in the representative capacity he was re-elected on 20.09.12. h. The Company Law Board has failed to consider that prima facie, the documents produced by the Petitioners would reveal that the functioning of the 7th Respondent in the Board has been on the principles of quasi-partnership with equal participation from all the groups for over a period of 20 years. i. As the partnership was only oral, the 7th respondent demanded a confirmation in writing from the 2nd respondent who assured that the earlier understanding would continue. However, the 2nd respondent had been forcing the 7th respondent to sell away the shares in the 1st respondent company and upon refusal, the 7th respondent has been ousted from the company only to swindle the property in boat club and to illegally sanction loan to the companies in which they are interested. j. The Company Law Board has erroneously placed reliance on Article 97 to hold that the 7th Respondent was not one of the first Directors of the Compan....
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....ners group represented by the 7th Respondent and the other groups became stake holders in the erstwhile M/s.Binny Limited with each Promoter having almost same percentage of equity ownership. v. The Company Law Board has failed to consider that in view of the peculiar share holding pattern, which is akin to a quasi-partnership, the Petitioners have an inherent right in the management of the Company and the removal of the petitioners representative would amount to oppression. vi. The Company Law Board has failed to consider that the 7th Respondent and his family members own 100% share capital in the Petitioner Companies and therefore, effectively the 7th Respondent is holding the shares of the 1st Respondent Company through the Petitioners. vii. The Company Law Board erred in holding that the Petitioners are espousing the cause of the 7th Respondent as if the 7th Respondent has no nexus to the 1st Respondent Company. The Company Law Board failed to take into account the letter dated 01.10.2014. viii. The Company Law Board failed to see that the procedure, followed during the election to oust the 7th Respondent and to deny any representation to the....
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....64 is incorrect and many documents have been relied upon to show that the said provision is not attracted as the 7th Respondent was either not a Director or had obtained orders from appropriate courts. xvii. As the petitioners want the votes of the 2nd and 3rd respondent to be discarded, it is not necessary to challenge the resolution, whereby the proposal to re-appoint the 7th respondent was defeated. 8. The learned Senior Counsel appearing for the appellants/Petitioners has also relied upon numerous documents from the date of taking over M/s.Binny Limited, its demerger on various dates and steps taken by the 7th Respondent for revival, to support his contentions that management is done on quasi-partnership and also upon the following judgments:- 1. AIR 1990 SC 867 (Dorab Cawasji Warden Vs. Coomi Sorab Warden and others) 2. 1965 35 CC 351 (SP.Jain Vs. Kalinga Tubes) 3. AIR 1981 SC 743 (Needle Industries and another Vs. Needle Industries Newey Holdings Limited) 4. 1973 AC 360 House of Lords (Ebrahimi Vs. Westbourne Galleries) 5. AIR 1976 SC 91 (Hind Overseas Pvt Limited Vs. Raghunath Prasad Jhunjhunwala and another) ....
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...., Madurai Vs. Commissioner of Income Tax) 32. 2006 ILR 2 Delhi 780 (Telecommunications Consultants India Limited Vs. TCIL Bellsouth Limited) 33. AIR 1953 SC 148 (Nalinakhya Bysack Vs. Shyam sunder Haldar and others) 34. 1988 4 SCC 419 (Dr.Baliram Waman Hiray Vs. Justice B.Lentin and others) 35. AIR 1989 1 SCC 101 (Municipal Corporation of Delhi Vs. Gurnam Kaur) 36. 2012 7 SCC 462 (Purbanchal Cables and Conductors Pvt Limited Vs. Assam State Electricity Board and another) 9. Mr.P.H.Aravind Pandian, learned Senior Counsel appearing for Mr.Anirudh Krishnan and Ms.Janani Shankar, learned Counsel for the 6th appellant in Criminal Appeal.No.14/2014, assailed the impugned order of the Company Law Board, by contending that the 6th Petitioner is the wife of the 7th Respondent and that the 7th Respondent has been representing all the Petitioners at every stage for the last two decades. The learned senior counsel also contended that the decision of the Company Law Board to deny the interim relief contending that the relief is similar to main relief is unsustainable, in view of the settled proposition of law that interim relief and main relief ca....
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.... and the 7th Respondent and his family were never recognised as a group. The learned senior counsel also contended that the 7th Respondent is, in fact, disqualified from being appointed as Director as he has suppressed many material facts regarding non filing of return and criminal cases. The learned senior counsel also contended that no questions of law have been raised by the Petitioners and the order appealed is only an interim order. Since the Respondents have already filed their counter, the parties may be directed to argue the main petition before the Company Law Board. The learned senior counsel also relied upon the circular of SEBI dated 17.04.2014 to contend that as per Part-A of the circular, containing Clause 35B of the revised equity listing agreement, postal ballot has been permitted to enable the shareholders who have no access to e-voting to vote and therefore, e-voting is not the only method and paper ballot can also be resorted to. The learned senior counsel also referred to the general circular No.20/2014 of the Ministry of Corporate Affairs, dated 17.06.2014 to contend that the relevant provisions for e-voting under the Companies (Management and Administration) R....
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.... there is no such clause. The Learned Senior Counsel further relied upon section 149 (7) and Schedule IV of the Companies Act 2013 to contend that the 7th respondent was an independent director and is therefore bound by the decisions of the shareholders.The learned senior counsel further contended that no questions of law have been raised by the Petitioners and the entire arguments advanced now have to be agitated at the final hearing of the Company Petition before the Company Law Board. The Learned Senior Counsel also relied upon section 167 of the Companies Act 2013 to contend that the 7th respondent is not entitled to be appointed as the director as he is disqualified under section 164. The learned senior counsel also contended that no prima facie case of oppression and mismanagement has been made out. In support of his contentions, the learned senior counsel Learned Senior counsel relied upon the following judgments and sought for dismissal of the appeals:- 1. 116 CC 465 (Micromeritics Engineers Pvt. Limited and others Vs. S.Munusamy) 2. 421 ITR 589 (CIT Vs. Scindia Steam Navigation Company Limited) 3. 1995 82 CC 836 (Mad) (Malleswara Finance Investme....
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....WARA FINANCE & INVESTMENTS CO. v. C.L.B. (82 Comp. Cases 836) has held that an appeal under section 10F before this Court can be entertained on a question of law that arises out of that order and on the question of fact, the appeal does not lie. This Court also held that the question whether the increase in share capital is proper or not is a pure question of fact and no appeal is maintainable against the decision arising out of the question. Therefore it is clear that the findings rendered by the Company Law Board on the increase in share capital and the allotment of shares to various relatives of the appellant-2 and inclusion of appellants 4 and 5 as directors of the company and removing the respondents from the office of the Directors of the company and reconstitution of the company's Board are all questions of fact as the findings have been rendered on materials on record and they are supported by evidence. Though the appeal is liable to be rejected on the very short ground, however, considering the elaborate arguments advanced by Mr.T.V.Ramanujam, learned senior counsel for the appellants, this Court is inclined to go into the merits of the submissions." 2. In 421....
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....s to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order. (3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order. (4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it. 3. 2005 59 SCL 27 (Mad) PPN Power Generating Company Limited Vs. PPN (Mauiritius Company and others), it has been held as follows:- "18. The above appeal is preferred under Sec.10-F of the Companies Act, 1956. Under the said provision, any person aggrieved by the decision or order of the CLB is given liberty to prefer an appeal to the High Court on any question of law arising out of that order. So, now we have to decide on the basis of the above said provision, regarding the scope of our jurisdiction while dealing with the order of the CLB, dated 5.7.2004. Even according to the learned Senior Counsel appearing for the appellant, the CLB is only exercising its inherent and discretionary power eith....
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.... present case we have demonstrated that the judgement of the Company Law Board was given in a very cursory and cavalier manner. The Board has not gone into real issues which were germane for the decision of the controversy involved in the case. The High Court has rightly gone into the depth of the matter. As already stated the controversy in the case revolved around alleged allotment of additional shares in favour of Ramanujan and whether the allotment of additional shares was an act of oppression on his part. On the issue of oppression the finding of the Company Law Board was in favour of Prathapan i.e. his impugned act was held to be an act of oppression. The said finding has been maintained by the High Court although it has given stronger reasons for the same." 2. In1999 35 CLA 97 (Cal) (Nupur Mitra Vs. Basubani P Limited), it has been held as follows:- "85. The second question raised by the respondents is that this court should not interfere with the discretion exercised by the Company Law Board, No doubt it is ordinarily not open to the appellate court to substitute its own discretion for that of the trial Judge. However it is equally established that if the ....
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.... therefore, the appeals are not maintainable. The interim relief as sought in this case are in the nature of prohibitory and mandatory injunction for which the Petitioners must satisfy the mandatory tests of prima facie case, balance of convenience and irreparable loss. This court feels that the 7th respondent cannot be permitted to continue as a director after he has failed in his endeavour to be re-appointed by virtue of an interim order. Any subsequent act(s) of mismanagement would give rise to a fresh cause of action to the petitioners. Hence, the loss if any cannot be held to be irreparable. The Company Law Board has considered the pleadings and the documents and considering the nature of claims, refused to grant interim orders by giving specific findings. 19. In the judgment reported in 1990 1 LW 495 (Wander Limited and another Vs. Antox India (P) Limited) , the Apex Court has held as under: "8. On a consideration of the matter, we are afraid, the Appellate Bench fell into error on own important propositions. The first is a misdirection in regard to the very scope and nature of the appeals before it and the limitations on the powers of the Appellate Court to subst....
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....eported in 2011 167 CC 167 (Mad) (K.Muthusamy P.Durai Vs. S.Balasubramaniam and others), this court has held as follows:- "21. In Tea Brokers P. Ltd vs. Hemendra Prosad Barooah, (1998) 5 Comp LJ 463 (Cal), a majority shareholder was reduced to the position of minority by the allotment of new issue of shares wholly to the minority group. The circumstances were such that if the aggrieved majority shareholder was called upon to dispose of his stake in the company to the other group, he would not be able to get adequate compensation because the business which he had built in the name of the company was of great value to him. The Court held that such a single act was sufficient to constitute oppression so as to enable the Company Law Board to exercise its powers under Section 402. The single act was capable of causing perpetual damage to the shareholder. His removal from directorship and the new allotment were both set aside. While doing so, the Division Bench of the Calcutta High Court observed (at para 46): - "This is undoubtedly, a right and privilege which a member enjoys in his capacity as a member of the company. It will ordinarily be an act of oppression on the ....
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....light of the law laid down by various Courts, let us now have a look at the acts of oppression and mismanagement pleaded in the company petition filed by respondents 1 to 5 herein. As pointed out earlier, the company petition as it was originally filed, alleges the following acts of oppression and mismanagement:- (i) that after the induction of the first respondent as a Director in 2003, he was not issued with any notice of any meeting of the Board of Directors and that his letter dated 29.4.2004, sent by registered post, enclosing a demand draft for Rs. 500/- with a request to send all notices for the meetings of the Board and the meetings of the company was returned as refused; (ii) that the Kalyana Mandapam was leased out by the appellants, to the son of the first appellant by a registered Lease Deed dated 28.6.2002 for a monthly rent far below the market rate of rent; (iii) that the land on which the Petrol Bunk was located was sold to the first appellant and his wife for a consideration of Rs. 60 lakhs and that the appellants started paying a sum of Rs. 99,000/- per month towards interest to the first appellant and his wife, on the ground that they c....